Real estate visionary, Sr. Managing Partner at ABI Multifamily, and Co-founder of Neighborhood Ventures real estate crowdfunding company.
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Commercial real estate as a whole may be taking a hit during the pandemic, however among CRE investments, Phoenix multifamily has a number of factors that point toward long-term stability. And while I can’t give you a peek into an all-knowing crystal ball, I can share the following reasons and best practices for investing in Phoenix multifamily now.
1. Population growth: In recent years, the population of metro Phoenix and surrounding areas have been skyrocketing. Job growth, appealing climate, lack of natural disasters, business environment and quality of life have drawn companies and individuals to this desert oasis. With many now working from home due to the pandemic, office space may feel the hurt, but a continued population boom means multifamily growth is needed to meet the demand for housing in Maricopa County.
2. Business-friendly environment: With a governor dedicated to creating a business-friendly environment in the state of Arizona, companies are continuing to choose Phoenix for their headquarters — some even relocating in the middle of the pandemic. And while population growth has likely slowed from early January, the elements that created an environment for businesses to thrive (lack of regulation; pipeline of talent from top state universities, community colleges and trade schools; growing tech, health care and real estate sectors) are not expected to go away any time soon. Opportunity zones, too, offer great potential and tax benefits.
3. Operationally friendly: Arizona has traditionally had supportive legislators and fair rental laws. Additionally, the state does not have rent controls. The strong rent increases recently recorded are a direct result of a strong rental market, a history of strong capital improvements to properties by owners and strong job/income growth in Arizona. Because there are no restrictions on rental rates, the market sets the rate, not a housing board. Evictions are never something any owner or tenant wants, but if a tenant isn’t paying rent as contractually agreed upon, Arizona has a straightforward process for the owner to notify the resident in the first few days after a rent payment is missed, followed by the owner’s ability to regain control of the apartment within 30 days if the tenant does not fulfill their obligation.
4. High returns: Historically, the Phoenix market has been at the top of the list for high returns on multifamily investments (download required). In the past year, our thriving desert city saw an annual total return of 13.73%. Demand for apartment housing is strong, even in a Covid-19 world, where home has become more important than ever. Millennials are a big factor. Apartment List’s 2019 Millennials & Homeownership Report showed 11% of millennial renters in metro Phoenix expect to rent forever.
5. Migration destination: One analysis found that by the end of 2019, Phoenix was adding over 40,000 people per year, many relocating from California and the Midwest. In fact, according to a study by HireAHelper, more people moved to Scottsdale between March 11 and June 30 than any other U.S. city.
Investing Tips
I would advise anyone looking to invest in Phoenix multifamily to move quickly. Prior to the pandemic, the market was extremely competitive and there were always multiple offers on properties. While there is less competition and fewer bidding wars now, I am already starting to feel a shift — and this temporary slowdown will not last forever. I am confident this market will come back and exceed the pace we were at previously.
Core neighborhoods in Phoenix right now make for the best investment, simply because these are the areas where people want to live. Neighborhoods with good walkability, good amenities and proximity to shops and restaurants are highly desirable. People want to walk out the door and enjoy the neighborhood. Downtown Phoenix, Midtown Phoenix, Uptown Phoenix, Downtown Tempe and even Downtown Mesa are all great spots.
Investors must be able to recognize the best opportunities. It is important to work with people who are active in the market and have strong relationships with owners, clients and the market in general. The active brokers are the ones more apt to get a good deal in front of you. Unfortunately, there are desperate brokers starving for business who will tell people whatever they need to hear to get the deal done. A good broker who does 30 to 40-plus transactions per year is most likely to structure the right deal to help you make a profit. They want to see people do well.
Relationships are key. Establish connections with your lender and property management company right away — even before you make an offer on a property. Meet these people personally. See who is active in the neighborhoods you want to be buying in. Get to know them. Having these people on your side will help immensely in the process. Property management companies can share their thoughts on how they would run things and provide key insight for inspections. A good lender can help you understand the location, condition and unit mix, plus what kind of loans you can get on certain types of properties. Similarly, building relationships with renovators and contractors who have capacity will help you have a great experience and achieve a great outcome.
In a traditionally competitive market like Phoenix, if you want to be active, you need to prepare now. The minute a good deal pops up you must have a game plan and be able to move very quickly. A good broker will help you make connections and educate you on a neighborhood and properties. Finally, for continued success, I can’t stress enough how much it helps for Phoenix investors to remain loyal and show partners they are valued. From brokers to property managers, contractors to lenders, if you reward the people who helped you by supporting them with more business and referrals, they will return the favor tenfold.
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